GregBensinger

--Company is targeting customer defections, which rose to 3.1% in fourth quarter

--No word yet on if or when T-Mobile will carry iPhone

NEW YORK (MarketWatch) -- T-Mobile USA could use a few more customers like Heather Johnson.

The 26-year-old Los Angeles resident on Saturday went online for step-by-step instructions on how to override the software on her iPhone 3GS -- or "jailbreak" it -- so she could use the smartphone on T-Mobile's network, albeit at slower speeds than on rival carriers with more robust networks.

"I really wanted to stay with T-Mobile, so this was a way to do it to take advantage of their better plans," said Johnson, who upgraded from a phone by LG Electronics Inc. (066570.SE). "It was easy to do."

For now, T-Mobile is the only major national carrier without its own version of the iPhone. The carrier has pointed to that deficiency as the leading cause of rising customer turnover -- including the loss of 802,000 contract customers last quarter -- and its largest obstacle to growth, as consumers flock to competitors Sprint Nextel Corp.
S, -2.53%
AT&T Inc.
T, -1.65%
and Verizon Wireless for the wildly popular device.

"Not having been able to offer the iPhone was the single largest reason for the collapse of the T-Mobile U.S. growth story," J.P. Morgan analyst Philip Cusick wrote in a note to clients.

T-Mobile can only support the iPhone on its 2G service, which delivers data at slower speeds than more current networks. The nation's fourth-largest carrier, a unit of Deutsche Telekom AG (DTEGY, DTE.XE), is spending $4 billion over the next several years to upgrade its network, rolling out so-called 4G LTE technology in 2013 at an initial cost of $1.4 billion, according to Chief Executive Philipp Humm. That endeavor will be aided by the addition of new airwaves, or spectrum, the carrier gained from AT&T as a result of their failed $39 billion merger late last year.

Humm declined to say if or when the carrier, which has about 33 million users, may offer its own version of the iPhone. Until then, the silver lining for T-Mobile is that it won't have to sustain the steep costs its competitors do to carry the iPhone. Although the smartphone is hugely popular -- the three largest carriers sold 14 million iPhones in the fourth quarter -- manufacturer Apple Inc.
AAPL, -1.92%
demands high carrier subsidies and volume commitments. An Apple spokeswoman declined to comment.

A T-Mobile representative declined to say how many customers the carrier expects to gain through its network upgrades. But the company hopes the upgrades will help combat customer defections -- or churn -- which rose to 3.1% in the fourth quarter from 2.5% a year earlier. That's more than triple the defection rate of the largest U.S. carrier, Verizon Wireless.

"We would expect, as we have harmonized bands, to see a huge influx of new iPhone customers coming onto our network," said Humm in an interview last month.

"If there were any LTE iPhones to come, they could also run on our network," he added.

J.P. Morgan's Cusick agreed that the network upgrades should give T-Mobile a shot in the arm. "T-Mobile's position will change with the planned network upgrade" because it can try to lure iPhone customers at the end of their contracts, he wrote.

T-Mobile has courted iPhone users, even last summer introducing a SIM card compatible with the smartphone. Humm said the carrier already has more than 1 million iPhone customers on its 2G network, although its rivals offer faster data speeds for the iPhone.

However, T-Mobile may enjoy a competitive advantage in that it offers an all-inclusive high-data-limit plan at a lower price than rivals, Humm said. A T-Mobile 5-gigabyte plan with unlimited voice minutes and texting costs $89.99 a month, compared to $119.99 at AT&T and $139.99 at Verizon Wireless. Furthermore, while T-Mobile offers data packages that slow download speeds after the first 10 gigabytes a month, AT&T said last week that it would cap usage for about 17 million customers on "unlimited" plans at 3 gigabytes, or 5 gigabytes for those on 4G LTE plans.

That, said Oscar Zubia, a 25-year-old music promoter from Los Angeles, would likely keep him tied to T-Mobile. "Even though T-Mobile's service is slower, there's practically no limit to how much data I can use," said Zubia, who has used a jailbroken iPhone on T-Mobile since about 2008.

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